DFS: the leading jurisdictions – comparing Malta to the UK and USA

Fantasy sports and daily fantasy sports (DFS) have been met by a variety of legal challenges since their rise to mass popularity. The main issue being challenged is whether this type of operation constitutes gambling. Gambling is determined by two elements. Firstly, an individual placing a bet or wager on the outcome of an event. Secondly, whether it is a matter of chance as to whether that individual wins or loses.

That latter question of whether DFS qualifies as a skilled game has become the locus of argument internationally, with jurisdictional regulators taking very different views across the globe. As such, for many operators offering fantasy sports it has become increasingly difficult to operate businesses at an international level. To address this grey area, Malta is planning a new licensing regime for 2017 which will identify daily fantasy sports as a game of skill and specifically not gambling, allowing for “light touch” regulations through a new game of skill licence.

With this new regime on the horizon and generating global interest, it is worth comparing the proposed regime with two of the other key jurisdictions in which operators are looking to locate (or relocate) their DFS businesses, to see how they stack up.

DFS in the USA

In the US, the Unlawful Internet Gambling Enforcement Act 2006 specifically states that fantasy sports are permitted under federal law as they are classed as a game of skill rather than a game of chance. Despite this, state legislation has often taken an opposing view and thus the status of DFS varies substantially between states. Some states have expressly permitted daily fantasy sports and regulate operators accordingly, some have banned them as gambling, whereas others continue to evaluate the legality and potential regulation of the games.

Those who have defied Federal legislation and declared DFS unlawful include Hawaii, Idaho, Illinois and Mississippi. In comparison, other states such as Massachusetts, Rhode Island, and New York have deemed fantasy sports as legal and some states such as Nevada have gone so far as to pass a law that requires operators to obtain a licence to run their business through the state. For operators, this presents a logistical nightmare with extra compliance being required to ensure regulatory requirements are being satisfied.

Due to the fragmented approach of the USA, many of the large fantasy sports operators are disconcerted and are looking at jurisdictions that provide credible and well-regulated regimes as a solution to the uncertainty.

DFS in Europe

On the issue of DFS Europe is as disjointed as the United States, if not more so. Europe also has different views on the legal issues of fantasy sports and each country has different opinions, regulations and approaches which makes operating in these target markets increasingly difficult and in some cases impossible. Countries such as Germany and Italy have defined fantasy sports as a game of skill and are regulating operators. Others such as France, Romania and Bulgaria have not yet even expressly acknowledged fantasy sports at all.

Europe’s market remains relatively inactive in daily fantasy sports and it is anticipated that there is large market potential for sports clubs and fans to make the move into a new opportunity to engage with fans.

DFS in the UK

The UK has a different legal perspective than that of the USA and Europe. Fantasy sports in the UK is clearly identified as falling into the definition of gambling and as such is required to be regulated and licensed in the same way as casino, sportsbook, or poker operators under the Gambling Act 2005. The Isle of Man, which is a popular alternative jurisdiction to the UK for gaming operators due to its excellent gaming regulations, takes the same approach. Currently there are a number of fantasy sports operators in the UK and Isle of Man, such as Mondogoal, and both DraftKings and FanDuel are now licensed by the UK Gambling Supervision Commission.

Despite the legal certainty in the UK it is argued that this is nevertheless impractical. To operate in the UK these businesses would require a pool betting operating licence as well as a gambling software licence before they can launch their games to the UK market; this is a lengthy, time consuming, and expensive process, especially for the small scale or start-up businesses. Many argue that applying these full scale regulations are dampening the entertainment aspect of fantasy sports and are restricting the growth of smaller businesses through high costs of compliance and taxation.

DFS in Malta

Malta will be the first jurisdiction not only in Europe but internationally to issue separate regulation and policies to protect customers for ‘games of skill. For many operators, this will be attractive in itself but with the additional advantage of moving into international markets outside of the US or UK with huge potential it is clear to see why some of the larger US operators have already indicated interest in applying for the new licence.

The new regulations are expected to provide emphasis on consumer protection policies to include age limitations, protection of player funds, data protection, and protection of vulnerable or addictive users. With the US currently having no consumer protection policies in place for the industry many forward thinking US operators who are concerned with longevity have already registered their interest in the proposed legislation.

Finally, the reduced time and cost barriers to entry compared to the UK and Isle of Man regimes will be particularly attractive for new market entrants looking to capitalise on this growing market.

Conclusion

A definitive position won’t become clear until Malta’s new regulations are published in full in the new year. Given what we know and expect from announcements so far, however, it looks like Malta’s new regime will significantly outperform the USA, UK, and other European jurisdictions in attracting both operators both new and established.

Becky Forrest - Business Development

Rebecca is responsible for developing and sustaining business development across all of our business sectors and jurisdictions and regularly travels and attends industry events. Rebecca also supports the marketing departments in creating seamless communications for clients and prospects.

Boston Limited is licensed by the Isle of Man Financial Services Authority.
Boston Trust Limited is licensed by the Malta Financial Services Authority to provide trust and fiduciary services in terms of the Trusts and Trustees Act.